Avis: Reforms to cause less demand for company cars

The value of using the most widely used cars, defined in the Income Tax Ordinance as a Class 2 vehicle will, over the next three years, jump from NIS 1,300 a month to NIS 2,770 a month.

By DROR KEDEM, THE BUSINESS POST
Just after Finance Minister Avraham Hirchson announced an increase in the value of car use by salaried employees, Dan Vehicle and Transportation DRT Ltd. (Avis Israel) said the move would, in its assessment, lead to a decline in the number of workers who take cars from their workplaces. DRT, owned by Amad Development and the Excellence provident fund, said this decrease would negatively impact the company's future financial results. According to the Treasury's plan, the value of using a car is expected to increase gradually over a three-year period. The value of using the most widely used cars, defined in the Income Tax Ordinance as a Class 2 vehicle (cars such as the Mazda 3) will, over the next three years, jump from NIS 1,300 a month to NIS 2,770 a month. That means the middle-class working public that until now has received a car from work as a benefit from employers, will be forced to pay a significantly higher tax than it has been paying. Assessments in the vehicle industry are that a considerable number of salaried employees, who earn about NIS 10,000 a month and receive a car from work, will prefer to receive the benefit from their employer in cash, even at the price of losing part of the benefit. This would lead to a loss of revenue for companies in the operational leasing field. DRT trades on the Tel Aviv Stock Exchange, and has a market value of about $84 million. The company finished the first three quarters of 2006 with revenues of about NIS 639m., compared with revenues of about NIS 541m. in the corresponding period the previous year. Company net earnings in the first three quarters of 2006 totaled NIS 47.5m., compared with net earnings of about NIS 49m. over the same period in 2005. The company's cash flow from current activity totaled about NIS 335.7m. after the first three quarters of 2006, compared with NIS 296m. in the same period in 2005.